Michael Covel breaks open the newest edition of Trend Following and discusses details of the 5th edition. It becomes a challenge to continually “up the ante”. The book is double the size and broken down into three sections: Principles, interviews, and research. Michael discusses: Dunn vs. S&P, mechanical trading, fundamentals, Warren Buffett and his drawdowns, 200 day moving averages, Nate Silver and Harry Denton on prediction, large fund trading vs. small fund trading, John W. Henry, chasing tops and bottoms of the market, Paul Tudor Jones, price action, process and outcome, CNBC and Joe Kernen, and much more.

Eric Barker is founder of the blog, Barking Up The Wrong Tree. He provides science based answers and expert insight on how to be awesome in life. His newest work is “Barking Up the Wrong Tree: The Surprising Science Behind Why Everything You Know About Success Is (Mostly) Wrong”.

What happens to valedictorians after graduation? Valedictorians are great at following rules and not breaking outside the box. This gets them far in school but not too far in the real world. Studies have proven most who excel in school end up in structured non-pioneering jobs. Most entrepreneurs don’t follow the rules of school or society. They are also generally classified as creative people and therefore have huge obstacles to maneuver through. Most teachers say they love creative children but research shows those are the students hated most. They don’t sit still or follow direction well. Luckily, In today’s era it is easier than ever for those creative types to succeed. The internet has given ideas the opportunity to spread quickly and easier than ever before.

With ideas easily being spread, so are negative (and positive) influences. We are always more influenced by those around us than we realize: work colleagues, friends, people at social events… whoever you choose to surround yourself with will have a tremendous influence on your life.

Learning to accept failure is just as important as surrounding yourself with the right crowd. New opportunities and innovation springs from a person’s ability to fail. Doing everything the same way every time, will always get the same results. Pushing boundaries is critical otherwise you’re not working toward expertise, you are just practicing redundant behavior. Everyone loves to hear about the 25 year old billionaire because it doesn’t seem like there was much work involved but when you peel back the layers, you see the grit necessary in getting to their success.

One example of grit and sustaining the right mindset is a research project Eric did with Navy Seals. What stood out the most was their optimism. They have short term focus that keeps them optimistically moving forward. Personal, persistent and pervasive are the three P’s that if kept positive, you can produce optimism and grit. Navy Seals don’t look at a 60 day program and say, “I can have no sleep or food for 60 days.” Instead they say, “I can get to lunch” and then after lunch they say, “I can get to dinner.” It is a day-to-day survival mode rather than big picture. The big picture is too daunting.

Michael and Eric end the podcast discussing what Eric calls “the buffet.” How close are you to buffet food? How much are your friends eating? Are you facing the food, or are you facing away? All these factors play a part in how your life is modeled.

R.P. Eddy is an American businessman, venture investor, former U.S. government official and former U.N. diplomat. He is currently the CEO of Ergo, a strategy and geo political intelligence firm. R.P. is also co-author of “Warnings: Finding Cassandras to Stop Catastrophes.”

How did Fukushima happen? There were lots of Cassandras who knew there were issues. There were warnings thousands of years old, along with experts telling officials not to build the nuclear plant so low. Hurricane Katrina in the United States is another example where there were Cassandras who had the foresight to fix potential disaster, but were ignored. What would have happened if there was foresight to Saddam Hussein and the Kuwait invasion? A man named Charlie Allen had that foresight but was pushed aside.

With such credible people having undeniable evidence being ignored, this brings up the question: How does a dynamic change in government happen? It doesn’t. R.P. did a study finding that 1% of the public think for themselves to make informed decisions. As people turn on the T.V. or surf the internet they find biased information. It’s hard to sit down, find unbiased information and make opinions of their own. When we have Cassandras who come out with real data and information to make changes that can save thousands, it is hard to decipher if they are chicken little or the real thing.

R.P. profiled in depth Cassandras ranging from: Fukushima, Katrina, Madoff, 2008 collapse, the rise of Isis, and the invasion of Kuwait. In every instance the Cassandra went to the decision makers and asked the question, “Why are you ignoring all the data?!” The more outlandish the warning, the easier it is to be ignored. People who understand what is wrong with our brains, the ones who doubt themselves and double check data are the traders and leaders who thrive. Michael and R.P. end discussing nuclear weapons theory, North Korea, potential Cassandras, India vs. Pakistan, and why we should all stop and reassess the information that is fed us.

Denise Shull is a performance and decision coach to traders and athletes. She is well known for her effectiveness in assessing performance under high pressure situations. Denise began her Wall Street career in 1994 as trader and desk manager on the Chicago Board Options Exchange. She was always fascinated by the psychology side of trading from the outset of her trading career. In 2015 she offered critical insight on how to put together one of the main characters of the hit show “Billions” on Showtime.

Denise has counseled an extremely wide variety of traders with all kinds of personalities and trading styles. However, at the end of the day everyone is human and all traders have common psychological threads which she points out. When Denise analyzes a client she tries to understand a sequence of feelings that person is making and what the patterns of their feelings are. At first it is just about her figuring out how a clients brain works, and then she helps them see the patterns.

What was the trigger for Denise to go down the path of studying the mind and human behavior? Starting from a young age she enjoyed observing and counseling friends. In her mid to late 20’s she started looking at her friends relationships and seeing that the people were all different but the scenarios were the same. A teacher helped point out a theory of Freud’s. Freud believed there is a critical period for attachment and self image when you are a child. Denise gives examples of how human reactions stem from a template made in the first 2-3 years of life.

The Yale Endowment is the crème de la crème. Nothing beats it? Their AUM is about 25 billion. Michael evaluates and reads some of the 2016 copy of The Yale Endowment. He wants listeners to decide if it is an example of how the best think, or if it is how one of the best operations self-describes themselves. Michael ends with breaking apart an excerpt from a presentation that David Swensen gave on his portfolio management strategy.

Andy Molinsky author of “Reach: A New Strategy to Help You Step Outside Your Comfort Zone” is on the podcast. Everyone can learn better ways to push themselves and step outside of their comfort zone. Andy and Mike help show listeners how to get there.

If we can’t find ways to sacrifice comfort, how do we obtain future success? There is some truth to living on the edge of your comfort zone. However, sometimes it is perfectly OK to stay in your comfort zone, like trading in the stock market. There are times to play it safe and there are times to take the leap. Often there is a lot of work that goes into taking a leap that is commonly overlooked. Having a person to hold you accountable, push you, or just let you know when an idea is good or not can be a critical building block to your success.

How you execute an idea is also monumental to creating success. Taking uncomfortable steps is often necessary to get projects off the ground. Andy uses the story of Neil Kennedy as an example. Neil had a comparable website to Facebook before Facebook was around. He was shy and uncomfortable talking to venture capitalists and wasn’t able to move forward in getting his project off the ground. Because of this, Facebook succeeded and Neil failed.

Five core challenges to stepping out of your comfort zone that Andy points out are: 1. Authenticity challenge 2. Likeability challenge 3. Competence challenge 4. Resentment challenge and 5. Morality challenge. You may not experience all of these challenges but they are a nice road map to help single out your weak points. Mike and Andy finish up their conversation talking about presentations and how to engage an audience.

Douglas Emlen is a professor at the University of Montana. He is the recipient of the Presidential Early Career Award in Science and Engineering from the Office of Science and Technology Policy at the White House. He has also earned multiple research awards from the National Science Foundation, including their five-year CAREER award.

Toby Crabel is founder of Crabel Capital Management. His approach is very different from Covel’s, but there are some commonalities: price action driven, systems, models, risk management. Crabel works on a whole different timeframe than the typical trend follower, typically turning his portfolio over in less than a day. Crabel, a former pro tennis player, has a philosophical nature and discusses how he executes these philosophies in the trading world.

Robert Aumann is an Israeli-American mathematician and a member of the United States National Academy of Sciences. He is a professor at the Center for the Study of Rationality in the Hebrew University of Jerusalem in Israel. Aumann is the 4th Nobel Prize Laureate in economics to be a guest on the podcast.

Ryan Holiday is an American author, writer, and marketer. He is the media strategist behind authors Tucker Max and Robert Greene, the former Director of Marketing for American Apparel and an editor-at-large for the New York Observer.

Sally Hogshead is an American speaker, author, former advertising executive, as well as the Chief Executive Officer of Fascinate, Inc. Hogshead’s newest book is “How The World Sees You: Discover Your Highest Value Through The Science of Fascination.”

Michael Mauboussin is an author, investment strategist in the financial services industry, professor at the Columbia Graduate School of Business, and serves on the board of trustees at the Sante Fe Institute (an independent, nonprofit theoretical research institute). He is managing director and head of Global Financial Strategies at Credit Suisse, where he advises clients on valuation and portfolio positioning, capital markets theory, competitive strategy analysis, and decision making.

Jack Schwager is author of the Market Wizards series and just completed his second edition of A Complete Guide to the Futures Markets: Fundamental Analysis, Technical Analysis, Trading, Spreads, and Options. Jack has gone into great detail updating his 1984 original edition with over 600 pages of educational insights.

At the beginning of his trading career technical analysis never made much sense. However, as he worked in markets over the years, he came to see that those who used charts and technical analysis tended to make more money. He also saw that fundamental analysis almost goes against the idea of money management. He found that the same went for risk management: How does risk management work with a truly fundamental perspective? It doesn’t for most.

The basics of futures trading for most is fuzzy. Jack gives a short summation of the basics: 1. Futures are very liquid. 2. They trade for every type of instrument you could think of. 3. You can go short or long just as easy. 4. Futures are truly a zero sum game. 5. They are real markets and have real fundamentals pushing trends. 6. Basic trends do have some sort of rational behind them in futures markets and the skilled fundamental players will beat the unskilled players if they are good at assessing probabilities. Michael and Jack finish talking about trading as an art vs. science, whipsaws, failure to exploit major trends, drawdowns and the efficient market hypothesis.

Michael reads, “Sparks Fly on Wall Street Over Tesla’s Current Valuation: The electric carmaker overtook GM in market capitalization last week. Is this just a bubble – or is battery tech the future?” Michael uses the piece to drive home the point that nobody knows why one stocks price is high or low. All that matters is the price. There is no way to know all of the fundamentals. Bottom line, Tesla stands around $300 a share. It is a waste of time to try and figure out why. Make sure you have your stops in place and enjoy the ride.